The Preference Bias in Sanitation: Explaining Failures in Public Provision

The Preference Bias in Sanitation: Explaining Failures in Public Provision

Abstract: This paper explores the persistence of a “low-equilibrium trap” in the
provision of public sanitation in the Indian subcontinent – characterized by a very low
willingness to pay at the local level that is conjoined with a highly subsidized supply
supported by soft-budget constraints at the state (federal) level. The resulting low level
of cost-recovery is combined with endemic misuse of funds often with a complete
breakdown of public services and frequent resort to private supply options.

When considered jointly, these outcomes are symptomatic of a “tragedy of the commons”.
Such failures in public provision at the local level may be traced, it is argued, to the
persistence of a culturally evolved preference bias towards private, as opposed to public,
consumption of hygiene. The ethically neutral outlook upheld by individuals towards
public squalor alongside an emphasis on private cleanliness under the climatic
conditions of the subcontinent is suggestive of a more general lack of an “existencevalue”
for the common good within the individual utility function that, in turn, implies
unwillingness on the part of individuals to sustain a positive demand for public goods over
time.

The administrative history of public sanitation in British India is used to illustrate the
widespread occurrence of such a bias within the population. The resistance to sanitary
reform and failures in public provision under both British India and post-independence
suggests that a normal preference for the public good – local or state (federal) -- cannot
be presumed for the Indian subcontinent. Without a change in the underlying preference
structure, neither federal provision nor Tiebout-inspired reforms at decentralized
provision ensure the desired outcome in terms of higher overall level of public sanitation.
Finally, the decentralized provision of public goods post-independence is compared with
the relatively centralized or “Imperial” administration of British India. Paradoxically, the
latter appears to be the least conceited response to actual preference biases confronted
by the state.

The provision of public sanitation in India suffers from significant failures at
both the micro and macro level. At the micro level these include highly distorted
and subsidized pricing that is unrelated to actual costs of provision; poor
collection efficiency – a result of both inability and unwillingness to collect arrears
in taxes and charges; neglect of basic maintenance expenses that co-exists with
disproportionate use of funds towards unproductive staffing and bureaucracy;
misuse of public funds, and corruption; frequent breakdown in service supply and
resort to private service options in the informal sector.

At the macro level, the federal division of state and local responsibilities
for finance and provision of basic services has created a fractured decision
structure that is unable to respond effectively to failures in public provision.
Though public sanitation is recognized in theory as a local public good, in
practice its provision in India has been subject to an unstable and changing mix
of central, state, and local responsibilities with attempts at both centralization and
decentralization producing unsatisfactory results. In both cases provision
continues to be effected under a soft budget constraint.

Two, the above mentioned failures have persisted over an inordinately
lengthy period of time and are reflected throughout the recorded administrative
history of modern public sanitation in India, since its inception in the seventeenth
century under British colonial rule. The persistence of failures in public provision
over time seems to point to unchanged fundamentals rather than to any specific
institutional failure per se. This paper, therefore, attempts to move beyond the
conventional analysis of market and government failures to explore a relatively
neglected piece of the public provision puzzle – the persistence of a widespread
preference bias in individual utility functions towards private, as opposed to
public, consumption of sanitation. The existence of a normal preference for public
goods or “developmental goals” is more often than not taken for granted in the
literature and by policy makers. And suggestions for reform while focused on
institutional and pricing inefficiencies have taken insufficient note of underlying
preferences or their evolution over time.

Emergence of the modern preference for public health and sanitation in
the developed world may be traced to the nineteenth century “sanitary reform
movements” in the industrializing cities of Britain and Europe. The resistance to
sanitary reform and the slow progress in public provision under both British India
and post-independence, instead, suggests that a normal preference for public
sanitation cannot be presumed for the Indian subcontinent. What is more, unlike
the experience of the nineteenth century sanitary movement in Britain, the
progress of modern scientific knowledge in the subcontinent has done little to
alter the prevailing structure of preferences. On the contrary, the persistence of a
preference bias towards private, as opposed to public, consumption of sanitation
has helped fuel individual consumption of medical services while limiting the role
of overall public health or sanitation.

The evolution of a preference bias for sanitation within the Indian
subcontinent and its cultural-geographic roots is briefly explored in Section 2.
Section 3 reconsiders the demand for public provision in light of such a
preference bias. The existence of such a bias implies unwillingness on part of
individuals to sustain a positive demand for public sanitation over time. A simple
individual equilibrium-choice framework is employed to explore the key
implications of such a preference bias for public provision.

Where the level and type of investment by the state in public facilities is
set by exogenously determined technical standards -- or by “developmental
goals” far beyond what is warranted by the prevailing preference for sanitation --
expectations of a soft-budget constraint are inescapably built into its operation
and maintenance by local agencies. Thus, post-independence, local sanitation
boards and municipal corporations in both urban and rural districts have rarely, if
at all, sought, let alone achieved, financial self-sufficiency in the provision of
basic sanitation services. This is reflected in available data on cost recovery
efforts by local public agencies in various cities subsequent to decentralization
measures undertaken by the state – recently, through the 73rd and 74th
Amendments (1992) to the Indian Constitution. The fiscal performance data for
urban services is reviewed in Section 5.

Suggestions for urban reform have focused on greater efficiency in pricing
and administration, including greater decentralization. However, these are bound
to have limited impact where the level and type of provision is far beyond what is
warranted by prevailing preferences. Here, the mid-nineteenth century “imperial
response” by the British to perceived sanitation problems in the subcontinent
proves to be instructive. Though centralized, the tax and public goods
administration under the imperial state appears to the least conceited response
when confronted with underlying preference biases amongst the local population.
The Indian state, in contrast, has effected a significant reversal of the more
measured “imperial response” with predictable effects. Section 4 discusses the
efforts by the British state to further sanitary reform in India. Conclusions are
provided in Section 6.

The preference bias in sanitation may be traced to the cultural-geographic
evolution of norms of personal cleanliness that are ritualistically upheld by
individuals in the Indian subcontinent alongside an ethically neutral outlook
towards external or public squalor. The harsh geographic-climatic conditions of
the subcontinent gave rise, some two millennia earlier, to an acute awareness of
personal hygiene without which individual survival would have been threatened.
Survival in the temperate climatic zones, in contrast, demands far less in the form
of personal hygiene. Furthermore, the culturally evolved toolbox employed by
the Hindus within the subcontinent came to include a stoic-like acceptance of the
pervasive dirt, squalor and disease wrought by an unyielding and oppressive
physical environment. The unique nature of this response is described in some
detail by Nirad C. Chaudhuri (1966), one of the most astute commentators on
Hindu civilization and society:

“What, however, nobody seems to suspect is the possibility that this impressive
mortification of the flesh through the sacrifice of creature comforts, cleanliness,
and appearance might have been due to the climate and weather of India. Now,
if the dust, of the country showed itself to be inescapable, the easiest way to
resist it was to demonstrate that it did not matter—that it did not deserve the
notice it was crying out for and getting from unwise Westerners.”

“In regard to the problem of facing the dirt and squalor created by the climate and
weather of the country, the Hindus created two very special attitudes quite early,
and both are continuing till this day. .. The first of these attitudes was natural and
positive, though it was also extreme to the point of extravagance. … It is a
maniacal anxiety for physical cleanliness, a super-Pharisaism. People afflicted
with it, .., bathe and wash all day long, purify everything they use, .., with Ganges
water or cow dung, … This monomania must have originated in the first
unpleasant experiences of the Aryans when they came into a tropical country.
They found the dirt formidable, far more difficult to counteract than in temperate
lands, and yet the labor to remove it was so great that it could not be faced with
readiness. Therefore a more powerful motivation for cleanliness was treated by
making the hygienic duty a part of religious duties. This was effectual, and it
created a fear of dirt which no modern American or north European housewife
can rival. .. The highest type of Hindu spirituality, on the other hand, arrived at a
different solution, which was that of the sadhus. .., the Hindu holy men made
indifference to filth an essential attribute of saintliness. At the highest level of
spiritual ascent, they said, all things must be equal to the devotee…But it must
also be added that, below the level down to which the Hindu outlook on life and
cultural consciousness seeped, there remained a wholly non-religious – passive
defiance of squalor… as the climate operated more and more intensely on their
outlook they become wholly neutral to squalor. The final result was an easygoing
and even happy co-existence with it.”

“Occidentals come from a clean and tidy material world, in which dirt, squalor,
and disorder are sins. But I declare every day that a man who cannot endure dirt,
dust, stench, noise, ugliness, disorder, heat, and cold has no right to live in India.
I would say that no man can be regarded as a fit citizen of India until he has
conquered squeamishness to the point of being indifferent to the presence of fifty
lepers in various stages of decomposition within a hundred yards, or not minding
the sight of ubiquitous human excreta every where, even in a big city.”

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These cultural responses evolved by residents of the subcontinent over
two millennia have coalesced into a preference bias that cuts across income
groups. Innumerable ethnographic and administrative records reveal the
existence of a long standing and widespread preference bias for private as
opposed to public consumption of hygiene within the general Hindu population.
The following observation is obtained from the one of the earliest comprehensive
accounts on Hindu customs and manners left behind by the French missionary
and scholar, Abbe J.A. Dubois, who visited and lived in India between 1792 and
1823. The Abbe noted the Hindu obsession with private cleanliness conjoined
with their indifference to unsanitary conditions outside their homes:

“Hindus purify their homes day by day from the defilements caused by
promiscuous goers and comers. It is the rule amongst the upper classes to have
their houses rubbed once a day with cow-dung, but in any class it would be
considered an unpardonable and gross breach of good manners to omit this
ceremony when they expected friends to call or were going to receive company.
.. This custom appears odd at first sight, but it brings this inestimable benefit in its
train, that it cleanses the house where it is in use from all the insects and vermin
which would otherwise infest them.” (p. 154)

“The houses are crowded closely together; the streets are narrow, and
excessively dirty with the exception of the street in the larger villages where the
market is held, which is kept cleaner, and in which a certain amount of order is
maintained. A few steps from the entrance door of each house is a large ditch
into which all the manure from the stable and the refuse from the house are
thrown. During the rains, these sewage pits become full of water, and form
cesspools, which give off the most disgusting effluvia. But this unpleasant
arrangement, which is the same in all the villages, does not appear to affect the
inhabitants in any way. .. In the middle of each street there usually runs a sewer,
which receives all the rubbish and filth from the house. This forms a permanent
open drain, and gives of a pestilential smell, which none but a Hindu could
endure for a moment.” (emphasis added)

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The implications of such a bias for the demand and supply of public
provision is considered next.

The admission of a preference bias within the individual utility function
suggests that the “optimal supply of public goods” may be determined by cultural-
geographic boundaries. The resulting implications for public provision may be
explored with the help of a simple equilibrium choice model, and key results that
correspond to the experience of public sanitation in the subcontinent are
highlighted here. The demand for public goods is considered here for two
contrasting cases: the so-called “progressive” case that illustrates a normal
preference for public sanitation; versus the “weak” case that illustrates a biased
preference for private, as opposed to public, sanitation:

Let U1(pv1, pu1, puN) be the utility function for individual 1.
Where, pv1 is the level of consumption realized by individual 1 with private
goods;
pu1, the level of private consumption realized by individual 1 that may be
partly or entirely fulfilled through use of the common good, puN, once
provided;
puN, the common good available to all N members of the community,
including individual 1.

While pv1 and pu1 are only different forms of private consumption, the
separation made here both serves a descriptive purpose and helps clarify
outcomes in public provision observed for the subcontinent. The separation
between puN and pu1 in the utility function is meant to denote an “existence
value” that the individual may attribute to the common good, over and beyond the
utility derived from his own utilization of the common good. That is, the individual
derives positive utility from the mere knowledge of the good’s existence, even
though it is possible he may never have an occasion to actually use the good.
Demand for public goods may be argued to require attribution of a positive
existence-value to the common good within an individual’s utility function.

Thus, while technological conditions would define the “least-cost” options for
satisfying individual consumption – either through the provision of pv1and/or pu1, the
relative technical efficiency of the supply option by itself will not be sufficient to
determine demand for a “public good”, puN. For example, an individual’s need for
security may be equally met through the purchase of a gun (pv1) and the
services of a hired bodyguard (pu1), as it could through utilization of publicly
provided police services. The individual may nonetheless value the existence of
common police services, puN, which is equally available to all members of the
community, including himself. Or, the desire to read a particular book may be just
as efficiently met through an individual’s private purchase of the book as it may
through membership in a reading club. Yet, the individual may value the
existence of a public library collection – one that is beyond his own reading
needs and of a size that he does not expect to ever fully utilize during his lifetime.

The distinct nature of a public good in the individual utility function
– say, public cleanliness – is thus illustrated by Figure 1 (Figures at end of
document). Let pv1 measure the individual’s consumption of hygiene with private
goods; pu1, the extent consumed by the individual using a public good – say,
cleanliness of the common area fronting his own house; and puN, the existence
of a clean neighborhood enjoyed in common with other individuals. The individual
displays normal shaped preference or indifference curves over both his private
and public consumption possibilities. The two private goods are supplied under a
constant return to scale technology, and individuals are assumed to be
homogeneous in income and preferences. The common good is provided at
constant costs and exhibits no lumpiness in provision. Provision of puN is
assumed here to be financed through an equal direct charge or lump sum tax
share mandated on each individual. The level (or quality) of public good provision
enjoyed in common by all individuals is indicated in quadrant (II) along the puN
axis. Once the public good is provided, exclusion is assumed to be impossible.

Prior to the provision of puN, FF in quadrant (I) is the total budget
constraint faced by the individual over the two private goods – pv1 and pu1. Each
individual purchases an equilibrium mix of pv1 and pu1 -- shown at A -- that is
independent of the amounts purchased by other individuals in the neighborhood.
However, given his preference for the common good, the individual remains in
disequilibrium within the public goods quadrant – at e0, and will wish to realize a
positive level of public goods provision. Under the simplifying assumptions made
here, the individual obtains equilibrium across the two quadrants at (B,C) with an
exogenously (or collectively) determined level of public goods provision, puN0
. TT in quadrant (I) is the after-tax budget constraint for puN0 level of public goods
provision; and B, the new private good consumption equilibrium obtained by the
individual, after tax. The dashed line through C, or TC, mirrors the corresponding
consumption possibilities in quadrant (II). That is, once the public good is
provided, the individual’s equilibrium level of private consumption at B, in
quadrant (I), is ultimately governed by the individual being part of the collective
equilibrium obtained at C, in quadrant (II). Conditions exist however that could
make the equilibrium obtained at C unstable or unachievable. Under such
conditions, both the tax-funding and allocation of the common facility will be
subject to significant problems of governance. Or, the individual’s private
consumption equilibrium may not be sustained at B.

The dilemma of collective equilibrium under conditions of majoritarian
democracy has been extensively studied by both the normative, social-choice
literature and under the positive, public choice inspired political economy. The
existence of a positive, if differing, preference for public goods however is taken
for granted in both perspectives. The developed world has sustained relatively
high levels of public goods provision along with high levels of tax compliance and
good governance in the allocation of public facilities (Fukuyama, 2004). In terms
of Figure 1, these countries have maintained a progressive path along the vector
P in quadrant (II) that signifies household access to increasing levels of public
good provision and utilization options over time.

The failures at tax collection and public goods provision that instead
characterize the developing world suggests that the preference structure
illustrated in Figure 1 cannot be taken for granted. The possibility of a preference
bias in the individual household’s consumption of private versus public sanitation
is therefore admitted in Figure 2. The individual’s indifference to public
cleanliness, or puN, is reflected in the shape of the indifference curves in
quadrant (II) of Figure 2, while the individual’s indifference map in quadrant (I)
displays normal preferences over private forms of consumption. For the
individual holding such a preference bias, the consumption of “public cleanliness”
is subject to rapidly diminishing returns measured in private utility terms. And the
“optimal” mix of private-public goods consumed by the individual when faced with
any reasonable set of relative prices would tend towards a corner solution. The
individual would buy into far greater amounts of private as opposed to public
cleanliness. In such a case, a state-mandated tax or charge (including no-littering
rules) that reduces the individual’s private consumption possibilities imposes a
net utility loss. That is, the individual perceives himself as being worse-off with,
rather than without, public provision8. The long term consequences for the
individual household in such a community is represented instead by the curve C
in quadrant (II), that indicates shrinkage of household access to common
facilities accompanied by a return to private consumption options in quadrant (1).

The dilemma of public goods provision proves to be fundamentally
different at the most elemental level. Thus, consider the familiar free-riding
incentive that potentially affects the stability of collective equilibrium. In Figure 1,
if the individual is honest and pays his tax share, he obtains a net increase in
welfare captured by the shift from e^o(U^o) to C (U^N) in quadrant (II). However, he
potentially obtains an even greater increase in private welfare by evading his
share of taxes. In a large number setting, tax evasion moves the individual
household towards D, on the higher indifference curve U^ev, as long as other
households continue to pay their tax share in the short run. However, in the longrun,
if other individuals attempt the same, tax collections break down and the
individual tax-evader faces the least preferred prospect of a return to e^0
, as puN tends towards a zero level of provision. The individual in Figure 1, therefore,
maintains a long term interest in enforcing honesty in tax collections, or
penalizing tax evasion. That is, each individual perceives a net gain through good
governance over time – measured by the increase in utility obtained from a move
from e^0 to C in quadrant (II).

No such surplus for good governance or honesty in tax payments exists
for the individual household defined by Figure 2. Instead, an attempt by the state
to provide an equivalent level of public goods, puN^0 within such a community
imposes significant utility losses on the individual tax payer, who is now forced
onto a lower indifference curve, U^N at C. The compulsion to evade, or lower, the
tax burden is much greater here than it is in Figure 1, and is motivated by
different considerations. While the “free-rider” is, by definition, motivated by
higher levels of private welfare attainable with the provision of a public good (at
D in Figure 1), the tax-evader in Figure 2 seeks – at the very least and through
tax evasion – to simply minimize his utility loss measured in private good terms.
Even under circumstances where such evasion or lowered tax burden leads to
poor service quality and/or a complete breakdown in service provision.

The fundamentally different incentive structure may be more starkly
illustrated by altering the pay-off matrix used in the familiar prisoner’s dilemma
game. In Figure 2A (end of document), the provision of the public good through
equal mandatory tax shares leaves both individuals – R & C -- with a worse payoff
in cell (I) – (1, 1) relative to their pre-tax position in cell (IV) - (2,2). Each
individual will therefore attempt to maintain his pre-tax position through tax
evasion even at the cost of reduced public provision – cell (III) - (2,1) or cell (II) (1, 2).
Note that the underlying indifference to the state of public cleanliness is
reflected in an unchanged private payoff perceived by the honest tax payer in the
face of tax evasion by other individuals -- across cells (I) & (II) or cells (1) & (III).
Under such a payoff structure, there exists little basis within the community to
expect, leave alone enforce, honesty in tax payments by individual households9.
Further, within a system of majoritarian democracy, the penalty threat required to
minimize tax evasion will be seen as “oppressive” and deemed politically too
costly.

Where the level and type of investment by the state in public facilities is
set by exogenously determined technical standards -- or by “developmental
goals” far beyond what is warranted by the prevailing preference for sanitation --
expectations of a soft-budget constraint are inescapably built into its operation
and maintenance by local agencies. Public provision will inevitably be burdened
with the necessity of subsidized or free provision to significant sections of the
population. Note that the provision of subsidies too differs in significance under
the two preference structures. In Figure 1 (the case with a normal preference for
public sanitation), subsidies in form of tax exemptions or reduced user or access
fees to a section of the population will be seen as a privilege that may, in
adherence to democratic principles, need to be satisfied through some form of
“means test”. In contrast, subsidized access to the public good, or exemption
from tax in Figure 2, far from being seen as awarding a privileged level of private
welfare, is likely to be interpreted as a “human right” – a claim to minimize the
“undue” burden of taxation. This difference in perspective across the two cases
may explain the observed inability of the state in India to impose a credible “hardbudget
constraint” on subsidized provision.

The overextension of facilities by the state in the face of such a preference
bias is likely to generate a far worse pathology of outcomes in the public sector.
With indifference to public sanitation that is widespread amongst the population,
public facilities once provided are valued by individuals only to the extent that it
allows each to reach a higher level of private consumption welfare. This is no
different from the individual behavioral response described within the “tragedy of
the commons”. In both cases individuals do not uphold a positive existence value
for the “commons” and there is an overriding incentive to “corrupt” or over-use
the commons for private individual gain. Thus, positions potentially obtainable
along the private consumption axis in Figure 2 – such as e^* or better still, e^r
-- will be individually preferred to position C, once the public good is provided. Thus,
position R in quadrant (I) represents a feasible increase in private gain through
corruption under conditions of a soft-budget constraint. R is obtained by the
individual household by a combination of tax evasion – measured in real terms
by the TF segment along the pu1 axis -- and use of the common facility for
private use – measured in real terms by C`T along the same axis. The public
park, for example, will be subject to both littering and pilferage as individuals
attempt to convert their access to the park for private ends. The allocation of
common facilities is subject to endemic corruption as individuals would seek to
obtain disproportionate benefits in quadrant (I) – from privileged access to school
admissions, hospital rooms, railway reservations, employment, etc. Only under
conditions where the soft-budget constrain breaks down, or is withdrawn, will the
corner solution, e*, be realized by the community along with a relapse towards
purely private consumption options in quadrant (I).

Until such time, the community is likely to be caught in a “low equilibrium
trap” with continuing depletion of resources within the public sector. Figure 2B
illustrates the problem by revising the payoff structure to reflect a fully subsidized
provision of the public good that is sustained by the availability of a soft-budget
constraint. Thus, unlike in Figure 2A, the private payoffs in cell (1) with public
provision remain unchanged relative to the payoffs in cell (IV) without public
provision. However, now each individual actively “exploits” the public facility for
private gain and is able to realize a significantly higher private payoff – reflected
by the payoffs (4, 2) or (2, 4) in cells (II) and (III). As in Figure 2A, the individuals
remain indifferent to the state of public provision, including its misuse by others –
across cells (1) & (II) or (1) & (III). In addition, the fully subsidized provision of the
public good means that neither individual has an immediate interest in moving
back to cell (IV) – the dominant cell in both Figure 2A and in the classic
prisoner’s dilemma game. That is, as long as the soft-budget constraint holds
and the possibility of securing higher private payoff exists, the community is
trapped between cells (II) & (III).

The persistence of such a “low equilibrium trap” over time is clearly
evident in the administrative history of public sanitation in India. Thus, under both
British India and the nationalist state, local agencies in rural and urban districts
have rarely achieved financial self-sufficiency in provision of basic services.
Instead, sanitation services tend to receive significant subsidies; sewage and
water tariffs or taxes are consistently set far below cost; collection rates even for
the subsidized charges remain low; municipal bodies are plagued by perennial
deficits and operate under soft-budget constraints; wide spread misuse and
pilferage of public facilities is observed; unreliable and poor service quality; lack of
maintenance, frequent breakdowns and resort to private supply options in the
informal sector.

The lack of demand for public sanitation is not unique to the Indian
subcontinent. It provoked the emergence of the so-called “sanitary movement”
and efforts at providing public sanitation in the industrializing cities of Britain
during the nineteenth century. Nonetheless, important differences underlie the
lack of demand for sanitation in the two cases. In the latter case, un- familiarity
with evolving modern standards of hygiene and sanitation informed both private
behavior and public choices. Public health efforts in Britain had also to contend
with a relatively high income elasticity of demand for hygiene – public and
private-- displayed by the lower income groups and in the working class
neighborhoods. Progress in the public provision of sanitation was obtained only
with support of the middle and upper income groups whose taxes crosssubsidized
city-wide sanitation measures and facilities (Chaplin, 1999). In this
case, the lack of effective demand by part of the population for public sanitation
was overcome through cross subsidization across the city at the same time that
education and advocacy of modern hygiene and public health measures helped
form a normal preference for these goods across the population.

Attempts at sanitary reform in the Indian subcontinent, however,
confronted a highly evolved set of indigenous preferences that did not escape the
notice of British administrators-reformers:

“Only one-fourteenth of the population of British India lives within municipal limits,
and the problem of rural sanitation involves, therefore, the health of the great
bulk of the inhabitants. When sanitary reform in India received its first impetus
from the investigation of the Royal Commission of 1863, there was practically no
organization for the prosecution of sanitary work outside the Presidency towns.

The villagers dwelt in complete indifference to their unhealthy surroundings, and
virulent epidemics raged unchecked and almost unknown to the authorities.
Since then progress has been slow, and in-commensurate with the thought and
labor that have been bestowed on the subject.

The reason lies in the apathy of the people and the tenacity with which they cling
to domestic customs injurious to health. While the inhabitants of the plains of
India are on the whole distinguished for personal cleanliness, the sense of public
cleanliness has ever been wanting. Great improvements have been affected in
many places; but the village house is still often ill-ventilated, and over populated;
the village site dirty, crowded with cattle, choked with rank vegetations and
poisoned by stagnant pools. That the way to improvement lies through the
education of the people has always been recognized. One of the first acts of the
Sanitary department was the issue of simple rules for village sanitation, which
were translated into the vernacular and explained to the villagers..” (emphasis
added)

The Imperial Gazetteer of India (1909)

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The response of the state in British to perceived “public need” may be
compared over two main periods. The first period, following the transfer of the
colonies to the British Crown in 1858, is characterized by a more measured and
centralized, or “imperial”, response to existing consumption preferences amongst
the native population13. The British treaded cautiously, promoting significantly
pared down schemes that could be supported locally for both their financial and
administrative requirements. Village unions were organized with an exclusive
focus on sanitation and funded by a small house-tax. Recognition of underlying
fundamentals severely limited the public-goods response supplied by the
administration – on both the tax and expenditure side:

“Much, however, remains to be done not only in the prosecution of large
works, but also in the improvement of general sanitary conditions. Lack of
funds is often a great obstacle to progress. The income of many
municipalities is very small, and cannot be greatly enhanced without a
burden of taxation which would be felt as oppressive.”

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The technical form of public-good supply too was shaped by specific
native preferences. For example, the policy towards eradication of malaria and
mosquitoes in the provinces was shaped by the native preference for private
wells and community tanks and an aversion to piped-water. In districts where the
resistance was strong and threatened the financial sustainability of a
conventional public-goods response, the British restricted themselves to the
supply and sale of quinine packets through public and private agents. Both the
distribution of tax effort and public expenditure on public goods across the
provinces in British India seemed to mirror the divergent preference for public
provision. The British resisted any attempts at “artificial and abstract” equalization
of public goods provision within its territories (Kumar, 1982).

The second -- a more democratic and decentralized -- stage of British rule,
post-1920, was marked by increasing resource commitments by the state in
response to pressures from back home and locally for more “nation building”
expenditures. The unsustainable nature of these developmental goals in light of
prevailing preferences for modern public services is evident in the performance
of local government bodies – municipalities, district and local boards -- following
the Government of India Acts of 1919 and 1935. The Acts set the stage for
significant fiscal and political decentralization with greater revenue powers and
responsibilities granted to the provinces and recognition of locally elected
officials. As expected, the elected members of municipal bodies proved
reluctant to increase taxes to cover the cost of service provision or to enforce
collection of dues. The district boards and municipalities continued to operate
with a soft-budget constraint that was steadily pushed outwards with greater
decentralization. Thus, while in 1895 the district boards had obtained 9 % of their
total revenues from the provincial government the latter’s contribution increased
to 42% by 1920 (Kumar, 1982). The same period witnessed accumulation of
uncollected arrears and increased embezzlement of funds by municipal bodies –
problems that continue to plague the financial health of local government, post
independence.

Plan investment outlays on water supply and sanitation projects in the
subcontinent witnessed dramatic jumps, post-independence. Plan outlays in the
urban water and sanitation sector increased from a modest amount of Rs. 430
million (current prices) under the 1st Five Year Plan (1951-1956) to Rs. 59822.8
million under the 8th Plan (1997-2001). Plan outlays for rural water supply and
sanitation increased from Rs. 60 million under the 1st Plan to Rs. 107287.9 under
the 8th Plan. The significant build-up of the state’s developmental goals
following independence in 1947 may therefore be seen in terms of a major
reversal of the earlier, more measured, “imperial response” to the underlying
preferences for private-public consumption with predicted results.

Thus, post-independence, local sanitation boards and municipal
corporations in both urban and rural districts have rarely sought, let alone
achieved, financial self-sufficiency in the provision of basic sanitation services.
While financial assistance from the state and central government for water supply
and sanitation has increased, local municipal agencies have failed to recover the
cost of maintaining their public facilities. Available cost recovery data for local
public agencies in various cities offer a stark picture.

The detailed study by Bagchi (2003) comparing pricing and cost recovery
levels for urban services in three metropolitan areas -- Ahmedabad, Chennai,
and Pune --found no significant improvement in the financial performance over
the 1990s, notwithstanding the impetus towards decentralization provided by the
73rd and 74th (1992) Amendments to the Indian Constitution. In all three cities,
tariffs and taxes for water, sewerage and solid waste disposal were found to be
unrelated to actual costs of provision. The rate of cost recovery for water and
sanitation services was measured by Bagchi (2003) by comparing the share of
water supply (WS) and sanitation revenues to total municipal revenue (TR) with
the share of water and sewerage expenditure to total revenue expenditure (TRE).
Thus, for the city of Ahmedabad -- the worst performer -- in 1990/1 while WS and
sewerage contributed just 8.84% of the total corporation revenue, it accounted
for almost 16% of the total expenditure. The relative shares in 1999/2000 showed
no change – at 10.28% of total revenue versus 17 % of total revenue expenditure
(see Table 4 in Bagchi). The cost recovery measures got much worse for all
three cities when considering solid waste disposal (SWD) and sanitation services
alone – i.e. without the share of water in revenue or expenditure. The per capita
measures in Bagchi (2003) are more revealing. Again, for Ahmedabad in
1990/91, the per capita income from SWD and sanitation was Rs. 0.12 (Rs. 5.65
for Pune; Rs. 0.11 for Chennai) as opposed to the per capita expenditure on
SWD and sanitation of Rs. 42.01(Rs. 52.86 for Pune; Rs. 44.66 for Chennai) . By
1999/2000 these had increased to, respectively, Rs. 1.29 (Rs. 17.77 for Pune;
Rs. 0.41 for Chennai) as against Rs. 170.20 (Rs. 129.54 for Pune; Rs. 112.93 for
Chennai). Overall, with the exception of a few municipalities in Maharashtra and
Gujarat, municipalities in no other state raise own-revenues sufficient to cover
local expenditures (NIPF, 2004).

Even with low levels of cost recovery for urban services, the three cities
display poor ability and willingness to collect arrears in payment. In Ahmedabad,
the percentage of collection to total revenue demand, including arrears, for its
conservancy tax was 19.72 % in 1990/91 while increasing to 31 % by 1999/2000.
The collection efficiency while higher for Chennai (34.49 % for its sewerage tax)
and Pune (52.24 % of the sewerage tax), showed less improvement over the
same period – overall collection efficiency in Chennai was lower at 30.87 % in
1999/2000.

The composition of total revenue expenditures (TRE) in all three cities
suggests on the other hand a persisting bias towards unproductive use. Thus, in
1990/91 share of salaries and wages (S&W) in TRE for SWD and sanitation in
Ahmedabad was as high as 93 % (90.5 % for Pune; 89.37% for Chennai) while
share of operation and maintenance (O&M) expenses in TRE for SWD and
sanitation was only 6.13 % (0.005% for Pune; 4.31% in Chennai). The picture in
1999/2000 remained mostly unchanged – S&W share at 92.95% (93.41 for Pune;
87.24% in Chennai) versus a O&M share at 5.53% (4.95 % for Pune; 1.99 % for
Chennai). What is more, expenditures on salaries and wages by municipalities in
several states exceed their own-revenues, leaving little or nothing for
maintenance and operational expenses (NIPF, 2004). The very low allocation of
funds towards maintenance has meant rapid deterioration of existing public
facilities over time and non-existent service.

The failures in provision of public sanitation in the Indian subcontinent
have arisen less from any specific institutional failing than from the proclivity of
the developmental state to ignore the prevailing preference bias towards private,
as opposed to public, consumption. By overextending the level and type of
provision relative to what local preferences would support, the state has set in
motion outcomes that, considered jointly, are symptomatic of a “tragedy of the
fiscal-commons”: low levels of tax compliance combined with endemic corruption
and mis-governance often with a complete breakdown of public services and
frequent resort to private supply options. The increased control over economic
resources exercised by the Indian state, post-independence, has subjected it to
the private-consumption demands by individuals and rampant corruption.
Electricity, irrigation, water and sanitation services are often provided free of
charge or significantly below-cost, and dues to the state frequently cancelled in
fulfillment of electoral promises. Local public sanitation services have rarely, if at
all, achieved financial self-sufficiency. Instead, sanitation departments in both
urban and rural Indian districts have struggled through varying stages of fiscal
bankruptcy and mis-governance, often with a total collapse in the provision of
basic sanitation services.

Greater efficiency in pricing and administrative reform including fiscal
decentralization ensures an optimal supply of public provision only where a
normal preference for the public good may be presumed. Given the lack of a
normal preference for sanitation in the subcontinent the desired outcome in terms
of a higher overall level of public sanitation is not ensured even under Tieboutmotivated
efforts at decentralization. A positive role for the state confronted with
the discussed bias towards private consumption rests as much on efforts to steer
the underlying preference towards the provision of public goods as it does on
better governance.

This is a somewhat rigorous piece for those with a more firm grounding in economics from Dr. Nimai Mehta on an important issue that confronts us today: public sanitation- or the lack thereof- and its significant impact upon our economy. It analyses the issue of the paucity of public works- in particular in terms of dealing with consumer and institutional waste, and the lack of a proper culture of 'organized sanitation' and hygiene, traced from a historical-empirical perspective.